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Outlines models that tackle the puzzle of wage rigidity existing under conditions of severe unemployment or underemployment in developing countries. It begins with efficiency wage models of agricultural labour markets in which employers pay wages above market‐clearing levels for reasons of nutrition, morale, or the prevention of shirking and absenteeism. Next, a repeated game‐based formalization of implicit cooperation among workers that prevents wage undercutting is presented. A discussion of other, mainly social reasons for segmented labour markets follows. The last section considers...

Outlines models that tackle the puzzle of wage rigidity existing under conditions of severe unemployment or underemployment in developing countries. It begins with efficiency wage models of agricultural labour markets in which employers pay wages above market‐clearing levels for reasons of nutrition, morale, or the prevention of shirking and absenteeism. Next, a repeated game‐based formalization of implicit cooperation among workers that prevents wage undercutting is presented. A discussion of other, mainly social reasons for segmented labour markets follows. The last section considers rationales for labour‐tying, such as seasonality and heterogeneity in tasks.